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Employer Actions after DOMA Dies
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Employer Actions after DOMA Dies
The federal Defense of Marriage Act (DOMA), which defined marriage as a union between a man and a woman, has been declared by the U.S. Supreme Court to be unconstitutional. What does that mean for your business? Plenty, if you have employees. Here are some actions you should be considering now.
In light of the Court’s action, all married employees and their spouses are entitled to the same rights and privileges, regardless of gender. Who is married? This question is not easily answered. Is marriage determined by where the union took place (place of celebration) or where the couple now resides (place of residence)? Currently, thirteen states and the District of Columbia recognize same-sex marriages.
Tax rules usually are based on the place of residence. In contrast, immigration rules are usually based on the place of celebration. More clarification on how to determine whether employees are married is needed for employers, and is currently being developed by the IRS and other federal agencies.
Same-sex married employees who have been treated for payroll withholding as single now have withholding allowances for married persons; they can no longer be treated as single. They may need to complete a new Form W-4, Employee’s Withholding Allowance Certificate to indicate their withholding allowances, which may differ from the number of allowances claimed when they were treated as single.
It is unclear at this time whether there is any retroactive impact on an employer’s payroll obligations. IRS guidance yet to come will provide some light on this point.
Complication: Depending on how marriage is defined (place of celebration or place of residence), it may be possible for an employee to be married for federal income tax withholding, yet single for state income tax withholding.
Retirement plan benefits
Spouses have certain rights in employees’ retirement benefits, including:
- A joint and survivor spousal annuity (QJSA) unless the spouse waives this right. There’s a similar right for a spouse if the employee dies before reaching retirement age.
- The need for consent to the employee naming anyone other than the spouse as the beneficiary of a 401(k) or other plan.
- The need to consent to a loan by the employee from the plan.
- Rights in plan benefits upon divorce.
Meet with your benefits advisor to determine which plan documents, if any, must be revised and other actions you’ll need to take to avoid any claims of discrimination. You may not have to take any action if your documents say “spouse” and you now apply the provisions to all spouses.
Other fringe benefits
Retirement plans aren’t the only fringe benefit that will have to be reviewed to ensure all spouses are given equal access. Plan documents and election forms may need to be revised. Other fringe benefits include:
- Health coverage. If you offer health coverage to employees’ spouses, you must now extend this benefit to same-sex spouses. Marriage is viewed as a “change in status” that allows employers to add spouses to health plans during the year, rather than waiting until the start of the next enrollment period. However, if the marriage isn’t recognized in your state and the place of residence determines marital status, health coverage to such spouse could still be taxable to the employee (as it has been up to now). If you are subject to COBRA because you offer health coverage and have more than 20 employees, continuation coverage is available to all spouses.
- FSAs. Unreimbursed medical costs of spouses can be covered through employees’ flexible spending accounts (FSAs).
The Family and Medical Leave Act (FMLA), which permits up to 12 weeks of unpaid leave time for employees because of the illness of a spouse or dependent, must be applied with respect to all spouses.
Following the Court’s decision, the U.S. attorney general was directed to review the definition of marriage. The IRS is also expected to issue guidance soon.
About the Author:
Barbara Weltman is an attorney, prolific author with such titles as J.K. Lasser's Small Business Taxes, J.K. Lasser's Guide to Self-Employment, and Smooth Failing as well as a trusted professional advocate for small businesses and entrepreneurs. She is also the publisher of Idea of the Day® and monthly e-newsletter Big Ideas for Small Business® and host of Build Your Business Radio. She has been included in the List of 100 Small Business Influencers for three years in a row. Follow her on Twitter: @BarbaraWeltman.